June 18, 2015

Some guys just can't resist the temptation to score an extra couple of hundred thousand bucks by using their position inside a company such as Qualcomm and the information they are privileged to know in order to buy and sell stock before the public has access to that information. Such a guy was Derek Montague Cohen who knew about Qualcomm's plans to buy Atheros Communications in 2011.

He knew that Atheros' stock value would go up after it was publicly announced that Qualcomm would buy them. So he bought Atheros stock before it was announced publicly and before the stock price went up. After the announcement and the resultant surge in Atheros' stock value, he sold the stock making a tidy $200,000 profit. But he was not the only one. Several other Qualcomm employees did the same thing. Now Cohen faces jail time, something that rarely happens in white collar crimes.

Cohen's lawyer argued that he shouldn't have to serve jail time because of his age, health problems and the lifestyle he's become accustomed to. He said, "It's a terrifying prospect for him to face prison at this point in his life." As Jay Leno would say, "Ahut. Ahut. Ahut." Poor baby. If you don't want to serve the time, don't commit the crime.

But Cohen, age 52, should thank his lucky stars that he lives in the good old US where white collar criminals are usually just given a slap on the wrist. In China they are routinely executed for less. Take the case of Zhou Yongkang, age 72, who was found guilty of accepting $118,000 in bribes. He was sentenced June 11 to life in prison. And Cohen's lawyer will still probably get him off after appeals and other legal machinations. Let's face it - America does not like to jail its white collar criminals. Look at all the bankers who have been found guilty of fraud, bid rigging and everything else; yet not a one of them has spent any time in jail.

In most of these cases the insider(s) get away with it. Who's tracking this kind of thing anyway? Cohen and the other blokes were just unlucky, that's all. Of course if they didn't think they were going to get away with it, they never would have done it which is the rationale for most crimes. On May 29, U.S. district Judge Janis Sammartino sentenced Cohen to six months in prison and 1000 hours of community service.

Cohen spent about $430,000 on stock and call options. U.S. Attorney Eric Beste took a dim view of Cohen's dealings. "This is a crime of opportunity being committed by people of education and experience, and there's a significant amount of discretion. These people choose to cheat, and they can be deterred."

As it turns out, Cohen was ratted out by another Qualcomm exec who also had his hand in the cookie jar. Robert Herman, who worked as a regional sales director in San Diego, pled guilty to insider trading in July and was sentenced to a $50,000 fine, 1,500 hours of community service and three years probation. He got out of jail time by cooperating with authorities, i.e. he ratted out Cohen. After getting a call from Cohen, Herman bought about $148,600 of stock in Atheros. Later that day, after the news went public, Herman sold the stock and made a $29,000 profit. Cohen, who had earlier pled not guilty, was the fifth person to admit guilt in connection with the deal, according to court records. Among the other members of this motley crew was Michael Fleischli who pled guilty to netting about $3,000, prosecutors said.

Insider trading is similar to front running in which a trader has knowledge that a stock will probably go up or down. Then he can buy or short the stock depending on circumstances before the surge or drop happens making a quick profit once the stock pops or dips. In this business advance knowledge of any trend can be used to make a profit. And that's how most hedge funds make their money. If you don't have access to special knowledge in this business, chances are you'll be left behind or left out.

But wait there's more. Two San Diego stockbrokers, Chad E Wiegand and Akis Eracleous, pled guilty to insider trading on June 9. The guy supplying the info was Michael J Fefferman who was a high ranking executive with Ardea Biosciences, a San Diego biotech company. He tipped off the other two that Ardea was going to be purchased by AstraZeneca in 2012. With that information in hand the two stockbrokers bought a ton of Ardea stock. When the public announcement of the merger was made, shares of Ardea stock shot up 51% in one day. They then made a tidy profit selling the stock they had just purchased at a much higher price. These guys also make money by knowing in advance of public announcement that certain clinical trials went off rather well or were a total dud. In any event it's information in advance of what the average Joe Schlub has access to that makes these guys their money, and only a few ever get caught.

The Yin and Yang of Insider Trading

In Chinese philosophy, yin and yang describes how apparently opposite or contrary forces are actually complementary. Theses forces seem to be at work at Qualcomm Corporation where criminal activity and a stellar reputation as San Diego's largest employer seemingly go hand in hand. From a philosophical perspective these seem to be the contrary forces that are actually complementary.

Jing Wang, a former executive vice president and president of Qualcomm’s global operations, pled guilty to insider trading and money laundering in July, admitting that he made $240,000 from trading Atheros stock through a secret brokerage account. His stockbroker, former Merrill Lynch vice president Gary Yin, pled guilty to money laundering. Wang’s brother, Bing Wang, is also charged but believed to be at large in China. Good thing they didn't pull this stuff in China or they would be looking at life imprisonment at the very least along with their countryman, Zhou Yongkang, but more probably they would be executed. Unlike the good ole US, China has no qualms at all about executing white collar criminals. Bet Qualcomm rues the day when it hired the Bing and Jing show.

So San Diego, America's Finest City, with America's Finest Corporations, turns out to have America's Finest White Collar Criminals. It's the Yin and Yang of business - the grimy underbelly complements the gee whiz image. What else is new?

February 20, 2014

It’s hardly a secret that the heads of major corporations in the United States get mind bending paychecks. While high pay may be understandable when a top executive turns around a failing company or vastly expands a company’s revenue and profit, but CEOs can get paychecks in the tens or hundreds of millions even when they did nothing especially notable.

For example, Lee Raymond retired from Exxon-Mobil in 2005 with $321 million. (That’s 22,140 minimum wage work years.) His main accomplishment for the company was sitting at its head at a time when a quadrupling of oil prices sent profits soaring. Hank McKinnel walked away from Pfizer in 2006 with $166 million. It would be hard to identify his outstanding accomplishments.

But you don’t have to be mediocre to get a big paycheck as a CEO. Bob Nardelli pocketed $240 million when he left Home Depot after six years. The company’s stock price had fallen by 40 percent in his tenure, while the stock its competitor Lowe’s had nearly doubled.

And then we have the CEOs in the financial industry, heads of huge banks like Lehman’s, Bear Stearns, and Merrill Lynch, or the insurer AIG. These CEOs took their companies to the edge of bankruptcy or beyond and still walked away with hundreds of millions of dollars in their pockets.

It’s not hard to write contracts that would ensure that CEO pay bears a closer relationship to the company’s performance. For example, if the value of Raymond’s stock incentives at Exxon were tied to the performance of the stock of other oil companies (this can be done) then his going away package probably would not have been one-tenth as large. Also, there can be longer assessment periods so that it’s not possible to get rich by bankrupting a company.

If anyone were putting a check on CEO pay, these sorts of practices would be standard, but they aren’t for a simple reason. The corporate directors who are supposed to be holding down CEO pay for the benefit of the shareholders are generally buddies of the CEOs.

Corporate CEOs often have considerable input into who sits on their boards. (Some CEOs sit on the boards themselves.) They pick people who will be agreeable and not ask tough questions.

For example, corporate boards probably don’t often ask whether they could get a comparably skilled CEO for lower pay, even though top executives of major companies in Europe, Japan, and South Korea earn around one-tenth as much as CEOs in the United States. Of course this is the directors’ job. They are supposed to be trying to minimize what the company pays their top executives in the same way that companies try to cut costs by outsourcing production to Mexico, China, and elsewhere.

But friends don’t try to save money by cutting their friends’ pay. And when the directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously.

Instead we see accomplished people from politics, academia, and other sectors collecting their pay and looking the other way. For example, we have people like Erskine Bowles who had the distinction of sitting on the boards of both Morgan Stanley and General Motors in the years they were bailed out by the government. And we have Martin Feldstein, the country’s most prominent conservative economist, who sat on the board of insurance giant AIG when it nearly tanked the world’s financial system. Both Bowles and Feldstein were well-compensated for their “work.”

Excessive CEO pay matters not only because it takes away money that rightfully belongs to shareholders, which include pension funds and individuals with 401(k) retirement accounts. Excessive CEO pay is important because it sets a pattern for pay packages throughout the economy. When mediocre CEOs of mid-size companies can earn millions or tens of millions a year, it puts upward pressure on the pay of top executives in other sectors.

It is common for top executives of universities and private charities to earn salaries in the millions of dollars because they can point to executives of comparably sized companies who earn several times as much. Those close in line to the boss also can expect comparably bloated salaries. In other words, this is an important part of the story of inequality in the economy.

To try to impose the checks that don’t currently exist, the Center for Economic and Policy Research (CEPR) has created Director Watch. This site will highlight directors like Erskine Bowles and Martin Feldstein who stuff their pockets while not performing their jobs.

CEPR also worked with the Huffington Post to compile a data set that lists the directors for the Fortune 100 companies, along with their compensation, the CEOs’ compensation, and the companies’ stock performance. This data set is now available at the Huffington Post as Pay Pals.

Perhaps a little public attention will get these directors to actually work for their hefty paychecks. The end result could be to bring a lot of paychecks for those at the top back down to earth.

March 25, 2011

Sen. Richard Shelby (R-AL) is a “self-professed fiscal conservative” who often rails against government spending and the supposed fiscally imprudent policies of his progressive opponents. He recently put out a statement that said, “Washington must put its fiscal house in order. American taxpayers are rightly infuriated by the federal government’s disregard for the same economic principles that govern every household and business budget.”

Yet when it comes to pork barrel spending for his home state, he is willing to go to extraordinary lengths to waste taxpayers’ money. The Chicago Tribune reports today that a provision Shelby inserted into the 2010 budget that has survived both recent continuing resolutions is costing taxpayers more than a million dollars every single day. The “Shelby provision,” as it is called, forces NASA to spend $1.4 million daily on the Constellation moon program, which it already canceled and doesn’t even want:

Congress has again failed to rid a temporary spending bill of language forcing NASA to waste $1.4 million a day on its defunct Constellation moon program. [...]

This so-called “Shelby provision” — named for U.S. Sen. Richard Shelby, R-Alabama, who inserted it into the 2010 budget — is expected to cost NASA roughly $29 million during the three-week budget extension through April 8. It has already cost the agency nearly $250 million since Oct. 1.

Unfortunately, this isn’t Shelby’s only act of defending his home state’s pork. He previously forced NASA to spend $500 million on the Ares 1 shuttle program, which was also canceled by the agency and considered defunct.

"The whole neocon idea of spreading democracy in the middle east by attacking and invading a country in order to change it from a dictatorship to a democracy is a ridiculous proposition on the face of it, but that's what the neocons were selling. And the preposterous notion that this was a moral undertaking - it was morally a good thing to do - to bring death and destruction to a nation in order to spread democracy is as repugnant as the notion that Hitler was morally correct to invade weaker countries because the Germans were the most advanced civilization composed of the stongest and best people. The American supermensch, according to the neocons, would advance the Iraqi undermensch to democracy and freedom. Depite the cost in death and destruction, they would thank us some day. They would throw flowers at the advancing troops much as the Austrians threw flowers at the German army during the Anscluss."

This pretty well sums up American policy under George W Bush and the neocons. Their notion of forcing democracy on a country by invading it played out in Iraq and Afghanistan. The IMF and the World Bank were US surrogates which forced policies of privatization, deregulation and shredding of the social safety net down the throats of any country not stong enough to resist. The neocon US saw as its duty the forcing of what they considered to be American values down the throats of the rest of the world. The result in many cases was the creation of an elite class of wealthy oligarchs and increased poverty among the majority of the people with a corrupt and repressive dictator favorable to American intersts at the top. The intersection of political and economic power was complete. Such was the case in Egypt.

For those that say that this protest came out of nowhere, let me set the matter straight. There have been protests as recently as last June. They just never got the mass publicity. In an article, Privatization and Corruption in Egypt, we find the following:

Last June there were protests against privatization in Egypt. The protests were so severe that the government actually decided to effectively end the program. Since the 1990's a key economic priority in Egypt was the privatization of state owned industries and a transition from a centrally controlled economy to a more free market oriented economy that would be part of the global capitalist system.

The justification for such a move was the inefficiency of the state controlled command economy. However, the more pressing concern was to open up the country to foreign investment and also enrich crony supporters of the government through privatization of state owned assets at fire sale prices.

Many in the public long believed that privatization of state companies involved corruption involving insider dealings and opposed it for this reason but also there was oppoosition from some old guard officials who thought that privatization would be destabilizing. When the state owned companies, this ownership could be used to help control dissent. Wages could be raised and people could be employed even when in purely capitalist market terms they were not needed. In fact they provided a social safety net of sorts.

The privatization has already gone about as far as it could go. Remaining state companies often are technologically outdated and overstaffed with poorly trained workers. No capitalist investors are interested in buying them except perhaps at very low prices.

In June of 2010 thousands of workers protested outside parliament complaining about lost jobs, wages, and social protections. Fearing even more political unrest the government decided to drop further privatization for now. The government has even bought back several companies from investors.

The demand from the international business community has been for further "reform"to cut Egyptians expectations. Egyptians expect their government to do things for them not just for business! Experts claim that the fundamental mistake of the government was in failing to reduce public expectations. Under the command economy and state ownership people expected the state to be the primary provider. People supported the government because the government gave everyone jobs. The experts complain that there are still about six million state civil service employees. Of course the reform would be to privatize most of these services, make them centers for private profit and investment and hire only if this made money for investors.

The new view of this is expressed by an official. Anonymous of course and to the New York Times! ‘You educate me, give me a degree, you give me a job, when I die you bury me - and I do nothing.' " Of course they did do something; they kept the system going inefficient or not. The problem is that it is not part of the system of global capitalism and it does not provide much for private profit or investors.

Political scientist Amr El-Shobaki said that privatization was a way that friends of the rich and powerful could grow more rich and powerful. The privatization process had begun under Anwar Sadat but it begin in earnest in 1991.

The goal was to privatize 314 companies. All the bargains are gone to investors, dissolved or merged with other state companies. 150 are still left.

Shobaki said:"There is always a cost for reform, but the problem here is that people now have the impression that those who always pay the cost of every reform are the simple people, while businessmen are never held accountable for corruption and while privatization of companies takes place in secret, without the knowledge or participation of the people," Perhaps people's impressions are correct.

Faced with opposition to privatization the government took another tack. Open the door to foreign investment and let state industries wither. In the Egyptian context, economists say it is a victory that this work force has shrunk, to about 300,000 from about 1.3 million in 1978. Right, it is a victory that jobs are lost. THe government that scored that victory is now in danger of falling. One of the reasons is the high unemployment.

The government has adopted other "reforms" to reduce expectations of the Egyptian working class and whip them into shape. The government adopted a law that allowed state-owned companies to deal with employees in the same way as private-sector companies. In 2009 it began to carry out a new law allowing the private firms to build infrastructure, including sewage plants and hospitals, another unpopular move intended to whittle away the state-dominated system.

A study of Egyptian attitudes show a quite different view of privatization and the role of government than in the U.S. Consider this:

""The majority of citizens believe that the best system would strengthen the role of the state and the public sector; only 20% of citizens considered privatization to be beneficial to Egypt’s economy. ""

There you have it, friends, in a nutshell! Privatization, a core neocon value, led to large scale unemployment and it was this that was the primary factor behind Egypt's revolution. You had large numbers of young college educated people with no job prospects. You had fantastic wealth among a tiny elite while the rest lived in poverty. This revolution was about corruption in this sense, but it was all perfectly legal. Mubarak himself had siphoned off $70 billion dollars from the system which required foreign investors to enter into partnerships with Egyptians owning 51%. The best state owned companies had been privatized and snapped up by foreign investors. The remaining state owned companies were virtually worthless. No investor wanted to buy them. In the name of efficiency workers had been laid off.

The New York Times confirmed that what was happening was the sell-off of state owned enterprises to private investors with the consequence of laid off employees and high unemployment:

Privatization began in earnest in 1991, when Egypt agreed to work with international lenders on an economic restructuring plan to help it repair a failing economy. This represented an effort to accelerate changes started in the 1970s by President Anwar el-Sadat, who began the process of dismantling the state-controlled economy fashioned by President Gamal Abdel Nasser in the 1950s and early ’60s.

The 1991 effort started off easily enough when the state readily found buyers for assets like its beer and cement industries. But over time, the state said it was left with difficult-to-sell assets, outdated factories producing cars, instruments for textile manufacturing and other things that are either obsolete or unwanted. At the same time public pressure became intense as workers complained that their rights were being auctioned off.

The goal was originally to sell off 314 companies. There are still 150 left: the rest have been sold to investors, gone public on the stock market, dissolved or merged with other state industries.

“There is always a cost for reform, but the problem here is that people now have the impression that those who always pay the cost of every reform are the simple people, while businessmen are never held accountable for corruption and while privatization of companies takes place in secret, without the knowledge or participation of the people,” Mr. Shobaki said.

Faced with so many obstacles, the government took another approach, trying to open the door to foreign investment while quietly allowing state industries to wither. In the Egyptian context, economists say it is a victory that this work force has shrunk, to about 300,000 from about 1.3 million in 1978.

The government also adopted a law that allowed state-owned companies to deal with employees in the same way as private-sector companies. This year it began to carry out a new law allowing the private firms to build infrastructure, including sewage plants and hospitals, another unpopular move intended to whittle away the state-dominated system.

So fundamentally the revolution was about jobs. It was about economic democracy as opposed to economic aristocracy. It was a rejection of crony capitalism in which state owned assets are sold off to a group of politically powerful and connected insiders. It was about a repudiation of neocon values. The reason that the American right wing is so upset is that they are afraid that the Muslim Brotherhood will take over. They are upset over the word "Brotherhood." Any new economic system put in place by the Egyptian people that has anything to do with "Brotherhood" is antithetical to American economic values, the values of capitalism. Why it might mean redistribution of wealth not from the poor to the wealthy which they favor but in the other direction from wealthy to poor which they don't. When George W Bush and the neocons talked about "democracy," democracy was just a euphemism for American style capitalism - a top down elite of wealthy investors and a majority underclass living in poverty with a repressive dictator at the top who maintained stability so American interests in the region would not be transgressed. The American right wing has gotten so comfortable with sham democracy that it has a problem with anything approaching authentic democracy.

But the Egyptian people are interested in real democracy not sham democracy, and that real democracy very definitely has an economic component as did the 1948 UN Declaration of Human Rights which states: "Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control." The Egyptian revolution is a repudiation of neocon values, a repudiation of privatization, deregulation, austerity and shredding of the social safety net. It is more than a call for free elections and a new parliament. It is a call for economic as well as political justice. Let's hope that the Egyptian people's revolution is not hijacked.

It's impossible to know what went on behind closed doors, but the final results show that the military sided with the people and against the oligarchy. If Bush were President, the results might have turned out differently. The military might have been persuaded to turn on the people thus preserving American interests in the region. The victory of the Egyptian people does not mean a repudiation of American interests, just a rejection of neocon values. Neocon values are only American values when Republicans are in control. The fact that we have a President Obama and Democrats are in power in the White House means that American values have shifted. Now American values can support and work hand in hand with a true democracy in Egypt. This might be the paradigm shift which truly delivers power and economic justice to the people and away from the interests of globalized transnational corporations and the international wealthy class of elite investors. Let's hope so.

January 29, 2011

I was shocked to listen to the Ed show on msnbc and hear a pundit's analysis of what was going on in Egypt. It seems the protests were all about jobs or the lack thereof. 40% of the population lives below the poverty line. In the US 40 million are below the poverty line. Political analysts maintain that the Obama administration is all about jobs, jobs jobs. In Egypt there is a great disparity between the rich and the poor. Ditto for the US. The pundit said that Egypt's economy will probably grow about 5% this year. Hmmm. Respectable economic growth without a corresponding increase in jobs. Sound familiar? The US will probably not even attain Egypt's GDP growth. In both cases economic growth does not translate into job creation or a diminution of the disparity between the rich and everybody else.

As I drifted in and out of sleep, I couldn't tell whether they were talking about Egypt or the US. American spokepeople were like taking this superior tone with repect to Egyptian dilemmas while I wanted to pinch them and say, "Pssst. You know it's the same situation in the US. You know it's all about unemployment even though "the economy" is doing well. The President told us so in his SOTU speech. The stock market's up." I guess "the economy" can do well without most of the people doing well if most of the rewards go to a small elite upper class. So the same thing is happening in Egypt as is happening in the US only on a larger scale. When the US hits 40% unemployment I would think that there would be rioting in the streets here as well. But all this self-righteous blather from pundits and politicians like we really have our act together and pity those poor Arabs that don't have any jobs. The fact of the matter is the same problems plague the US as plague Egypt. We just haven't gotten quite to their level of desperation. But this is nothing to be smug about because we're getting there.

Unemployment is a problem on a global level. There just aren't enough jobs to go around. In the old days people used to be backward but self-sufficient, as UCLA professor Anton Weber points out in his series, "The Western Tradition." They grew their own food, built their own houses, supplied their own energy in the form of human and animal labor. Today as the world has urbanized, more and more people are dependent on the market economy in order to survive. They are dependent on a job for the cash required to participate in the cash economy. This process of urbanization has been going on for some time now. As the world's population continues to increase at a fast pace, the new addition of human labor to the world is just not needed. Computers, automated machines and robots have diminished the need for human labor just as the work force on a global level has skyrocketed. Coincidentally, just before the Egyptian situation erupted, Arianna Huffington, attending the Economic Forum in Davos, Switzerland wrote the following:

My day started with taking part in a CNBC debate entitled "The West Isn't Working," focused on global employment. The debate was divided into two parts. The first part was on the motion, "For a dynamic workforce, go East!" and centered on the rise of China and India and the decline of the West as an engine for growth and employment opportunities. Kiran Mazumdar-Shaw, the chairman of Biocon, argued in favor of the motion while Barry Silbert, the CEO of SecondMarket, argued against. Laura Tyson, a member of Obama's Economic Recovery Advisory Board, Philip Jennings, the general secretary of the UNI Global Union, and I challenged both sides with our own comments and questions.

...

It was a lively debate, but for me the most memorable part of it was a powerful short video (posted below) highlighting the global unemployment crisis that was shown at the start of the program. Before the audience was let into the auditorium, the CNBC crew was doing a technical run-through with Maria Bartiromo, who was moderating the debate. So I got to watch the video five or six times in a row. And each time its potent mix of doomsday music, depressing statistics, and images of global unemployment (especially among the young) and political unrest really hit me. So when the debate started, I told the audience: "This video should be played at the White House and in every Congressional office every single morning until unemployment drops to pre-recession levels." Watching it leaves you feeling like you can't just sit there -- you have to do something before it's too late. It reminded me of the time Bobby Kennedy, as Attorney General, brought his brother's Cabinet to his office at the Justice Department and locked the door, forcing them to stay there for four hours discussing how to best address the crisis of poverty in America. I was ready to lock the doors of the Congress Centre auditorium until we had determined to do something concrete about unemployment.

Here's the video:

One of the biggest non sequiturs about this whole situation is the fact that the US gives $1.5 billion a year to Egypt. What! We borrow $1.5 from the Chinese, add it to our deficit and then give it to Egypt. And Egypt isn't the only recipient of billions borrowed from the Chinese and added to US debt. The US gives Israel $3 billion a year which is added to the deficit and borrowed from the Chinese. And yet Republicans are trying to foment a war against social security, Medicaid and Medicare. We have to cut the legs out from under American citizens while we blow billions on other countries which amounts are probably going to make their corrupt elites richer while not "trickling down" to ordinary citizens.

And did you notice that the Egyptians are not clamoring for democracy and freedom; they're clamoring for jobs. I'm sure the American power structure wishes that the protests were all about democracy and freedom and becoming more like us. But they aren't. They're about jobs, jobs, jobs, the same mantra that is being chanted here in the US but on a less disruptive level.

It looks like our boy Mubarak will have to go and the Egyptian youth may not accept a substitute. They might want a radically new government - one that can provide them with jobs, jobs, jobs. It's not likely to look like American capitalism which has brought the world disparity, disparity, disparity - fantastic wealth for a few and misery for the masses. The Muslim brotherhood is waiting in the wings. It preaches that Islam enjoins man to strive for social justice, the eradication of poverty and corruption, and political freedom to the extent allowed by the laws of Islam. The Brotherhood strongly opposes Western colonialism, and helped overthrow the pro-western monarchies in Egypt and other Muslim nations during the early 20th century. As Sayyid Qutb, an Islamic intellectual and supporter of the Brotherhood wrote in his 1963 book, Milestones, (Ma'alim fi al-Tariq), "The leadership of mankind by Western man is now on the decline, not because Western culture has become poor materially or because its economic and military power has become weak. The period of the Western system has come to an end primarily because it is deprived of those life-giving values, which enabled it to be the leader of mankind. It is necessary for the new leadership to preserve and develop the material fruits of the creative genius of Europe, and also to provide mankind with such high ideals and values as have so far remained undiscovered by mankind, and which will also acquaint humanity with a way of life which is harmonious with human nature, which is positive and constructive, and which is practicable. Islam is the only System which possesses these values and this way of life."

Obviously, the Muslim Brotherhood represents a threat to Western democracy and capitalism because the values upon which it is based are a direct contradiction to Western values. They are largely communitarian rather than individualistic values. Having been outlawed in Egypt, the Muslim Brotherhood may now make a resurgence, and, since this is a pan-Arabic movement, there may be upheaval throughout the Arab world. The problem there which is similar to the problem in the US is that democracy and capitalism have not produced sufficient jobs to keep huge numbers of people out of poverty while the upper 1% live with immense wealth.

October 19, 2010

The Perfect Storm

It’s a perfect storm. And I’m not talking about the impending dangers facing Democrats. I’m talking about the dangers facing our democracy.

First, income in America is now more concentrated in fewer hands than it’s been in 80 years. Almost a quarter of total income generated in the United States is going to the top 1 percent of Americans.

The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us.

Who are these people? With the exception of a few entrepreneurs like Bill Gates, they’re top executives of big corporations and Wall Street, hedge-fund managers, and private equity managers. They include the Koch brothers, whose wealth increased by billions last year, and who are now funding tea party candidates across the nation.

Which gets us to the second part of the perfect storm. A relatively few Americans are buying our democracy as never before. And they’re doing it completely in secret.

Hundreds of millions of dollars are pouring into advertisements for and against candidates — without a trace of where the dollars are coming from. They’re laundered through a handful of groups. Fred Maleck, whom you may remember as deputy director of Richard Nixon’s notorious Committee to Reelect the President (dubbed Creep in the Watergate scandal), is running one of them. Republican operative Karl Rove runs another. The U.S. Chamber of Commerce, a third.

The Supreme Court’s Citizens United vs. the Federal Election Commission made it possible. The Federal Election Commission says only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed.

We’re back to the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.

Just before it recessed the House passed a bill that would require that the names of all such donors be publicly disclosed. But it couldn’t get through the Senate. Every Republican voted against it. (To see how far the GOP has come, nearly ten years ago campaign disclosure was supported by 48 of 54 Republican senators.)

Here’s the third part of the perfect storm. Most Americans are in trouble. Their jobs, incomes, savings, and even homes are on the line. They need a government that’s working for them, not for the privileged and the powerful.

Yet their state and local taxes are rising. And their services are being cut. Teachers and firefighters are being laid off. The roads and bridges they count on are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut.

There’s no jobs bill to speak of. No WPA to hire those who can’t find jobs in the private sector. Unemployment insurance doesn’t reach half of the unemployed.

Washington says nothing can be done. There’s no money left.

No money? The marginal income tax rate on the very rich is the lowest it’s been in more than 80 years. Under President Dwight Eisenhower (who no one would have accused of being a radical) it was 91 percent. Now it’s 36 percent. Congress is even fighting over whether to end the temporary Bush tax cut for the rich and return them to the Clinton top tax of 39 percent.

Much of the income of the highest earners is treated as capital gains, anyway — subject to a 15 percent tax. The typical hedge-fund and private-equity manager paid only 17 percent last year. Their earnings were not exactly modest. The top 15 hedge-fund managers earned an average of $1 billion.

Congress won’t even return to the estate tax in place during the Clinton administration – which applied only to those in the top 2 percent of incomes.

It won’t limit the tax deductions of the very rich, which include interest payments on multi-million dollar mortgages. (Yet Wall Street refuses to allow homeowners who can’t meet mortgage payments to include their primary residence in personal bankruptcy.)

There’s plenty of money to help stranded Americans, just not the political will to raise it. And at the rate secret money is flooding our political system, even less political will in the future.

The perfect storm: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to get it back to work.

We’re losing our democracy to a different system. It’s called plutocracy.

August 21, 2010

Bell, California, a working-class town of some 38,000 ten miles outside of Los Angeles, is a unique place. Its local government has proven to be citizen-proof, media proof, city-council proof and even leak-proof from inside its self-enriching top officialdom.

Get this: Bell city manager. Robert Rizzo resigned a month ago after a Los Angeles Times exposé revealed that he was being paid $800,000 a year, plus 28 weeks of vacation and sick time worth $386,000. He was also expecting to make $600,000 a year in guaranteed pension payouts. Mr. Rizzo also borrowed $160,000 from the city.

Mr. Rizzo had clever political protection. The Police Chief was getting $457,000 a year and members of the City Council of this small city were making, for very part time work, about $100,000 each per year.

Mr. Rizzo's assistant manager was making a $376,288 base salary a year with a total compensation package substantially larger.

The average per capita income in Bell is $25,000 a year. More than a quarter of its population lives below the poverty line.

Expressions of shock and dismay erupted from the expected quarters-state legislators, other city officials of much larger cities, and the president of the League of California Cities, Robin Lowe. He said: "the reported abuses are an embarrassment to the thousands of hard-working men and women in city government," and offered the League's assistance to the Los Angeles County District Attorney and the California State Attorney General in their investigations.

The League should start by explaining to the two prosecutors why it did not know about the staggering pay scale of its member town, especially since there is a state Open Meetings and Public Records Act for ready utilization.

Bell Mayor Oscar Hernandez unpersuasively tried to make the best of the multiple pay bonanzas. He told the Los Angeles Times that: "Our streets are cleaner, we have lovely parks, better lighting throughout the area, our community is better. These things just don't happen, they happen because he had a vision and made it happen."

Let's pause momentarily to observe the variety and depth of abdication by the governmental and civic culture in beleaguered Bell. The city has fallen behind on its bond payments, and acknowledged it overcharged its residents' property taxes by $3 million to pay for those exorbitant pensions.

At least a dozen employees in City Hall had to know of these excesses and chose not to talk or leak the news over the years. The nearby newspapers, TV and radio stations did not dig it out. The city council knew but was compromised by its own huge payments. Still, political gossip is supposed to be irresistible. None of the citizens, including the usual town gadflies or skeptics, bothered to find out. All that was needed to bring this to light was one or two people blowing the whistle. After all, this information is not opinion. It's arithmetic-crisp numbers that invite everyone's howl.

The greater Los Angeles area is the very definition of sprawl: a lack of community that promotes more citizen slackers. It is inconceivable that such outrageously bold and self enriching formal compensation could escape the notice of citizens of a New England town-even one without a town meeting type of government. Ask them in Lowell, Mass., Torrington, Conn., Newport, R.I., Portsmouth, N.H., Burlington, Vt. and Bangor, Maine. I'll bet their reply would be a version of: "Are you kidding?"

Californian largesse also resides in Vernon, California (pop. 91) an industrial-commercial center of 5.1 square miles of territory and nearby to Bell. It is now revealed by the Los Angeles Times, whose reporters have found a new exciting town-by-town beat, that the city administrator, Eric T. Fresch, was paid $1.65 million in total compensation in 2008. Last year was a bummer; Mr. Fresch, who calls himself an experienced finance attorney, received nearly $1.2 million.

Granted, Vernon's businesses have over 50,000 workers and the town owns its electric utility. But getting paid four times the salary of the President of the United States, who has considerably greater supervisory responsibilities, seems to be an over-reach.

Last year, the Vernon city administrator, Donal O'Callaghan, was paid nearly $785,000, but that included being the director of the municipally-owned utility. Still, together they were just one full-time job. He also had help. The city attorney, Jeffrey A. Harrison, earned $800,000 last year, down from $1.04 million in 2008, while the City Treasurer/Finance Director, Roirdan Burnett had to make do with $570,000.

The former city administrator, Bruce Malkenhorst Sr., made $600,000 in 2005 and is awaiting trial on public corruption charges. He still draws a $500,000 a year pension.

All this information about salaries and benefits is public information, but no one in the public was interested enough to find out why nobody was minding the store.

The saving grace in Bell is that, once they found out, some folks were outraged, rushed in protest to the crowded city council meeting and, around town, handed out 10,000 leaflets to engage more residents.

This local movement calls itself BASTA (Bell Association To Stop The Abuse), which means "enough" in Spanish. They strive to arouse the citizenry about where their tax dollars are going, and recall the Council members, if necessary to clean house. They have had enough, finally, at last!

The BASTA organizers must believe there is a limit to the anomie caused by the disintegration of a community's standards of conduct and norms.